It’s business as usual for insurers

PETALING JAYA: It’s early days yet to gauge the impact of the detariffication of motor insurance premiums on the listed insurers as they take time to adjust to how the competition reacts.

Since last Saturday, insurance companies had the flexibility in pricing motor insurance premiums for comprehensive insurance taken by motorists as part of the ongoing liberalisation of motor insurance premiums that started last year.

While good for competition and an incentive for motorists to be on their best behaviour – since the premiums they pay will rise or fall depending on their safety records – analysts said the initial impact would be minimal, as the move will be gradual to ensure market stability. Motor insurance comes under general insurance and insurers listed on Bursa Malaysia included Allianz Malaysia Bhd, LPI Capital Bhd, Syarikat Takaful Malaysia Bhd, Pacific & Orient Bhd and Tune Protect Group Bhd.

An analyst told StarBiz that the insurers would be watching how their competitors price their premiums. “Motor-insurance claims are high and margins are thin. They are in a dilemma as lower premiums may mean more volume but higher risks of losses, while higher premiums will mean losing market share,” he pointed out.

He said insurers also faced cost pressures from the weaker ringgit and high litigation costs. “They have no control over repairs and court costs. Parts for imported cars are expensive and subject to the fluctuations of the ringgit. They will wait-and-see how the detarrification turns out. The band of 10% higher or lower is not a lot for most policyholders, except for the expensive cars. If claims are not made, then the no-claim bonus kicks in and when the policyholder renews, it becomes lower anyway,” he said.

Insurers can price their premiums 10% above or below current premiums, but will need the approval of Bank Negara, which regulates them, if they want to have more aggressive premium-pricing plans.

Another analyst said premiums could be lower initially but the impact would be minimal on the insurers, as the pricing would be subject to central bank guidelines.

He said the volume would help support the insurers’ revenue. “It’s a volume game, there’ll still be new cars and housebuyers who take out loans still need fire insurance,” he said. As for net profit, he said it would be a matter of managing the claims. “Earningswise, no big impact,” he said, adding that he had a “neutral” call on LPI and a “buy” call on Tune Protect.